More good signs of growth, tamer inflation as 2022 winds down

We know the RECESSION talk is already done with (not that there ever was much to it), but it was still good to see that US retail sales were strong in October.

U.S. retail sales increased more than expected in October as households stepped up purchases of motor vehicles and a range of other goods, suggesting consumer spending picked up early in the fourth quarter, which could help to support the economy.

The solid retail sales reported by the Commerce Department on Wednesday and signs of a slowdown in inflation raised cautious optimism the economy could avoid an anticipated recession next year or just experience a mild downturn.

Retail sales rose 1.3% last month after being unchanged in September. Economists polled by Reuters had forecast sales rising 1.0%. Retail sales are mostly goods and are not adjusted for inflation. They increased 8.3% year-on-year in October.

It was the strongest increase in retail sales in a few months, even as inflation stayed at a relatively tepid 0.4% for October. And bars and restaurants had an especially strong month, with sales up 1.6% in October, continuing the industry's robust recovery from its COVID-era losses.

The “slowdown in inflation” mentioned in the article was backed up by a good report on producer prices on Tuesday which indicated costs continued to level off for businesses. And that should reduce pressure to raise prices for consumers.

The produce[r] price index, a measure of the prices that companies get for finished goods in the marketplace, rose 0.2% for the month, against the Dow Jones estimates for a 0.4% increase….

On a year-over-year basis, PPI rose 8% compared to an 8.4% increase in September and off the all-time peak of 11.7% hit in March. The monthly increase equaled September’s gain of 0.2%.

Excluding food, energy and trade services, the index also rose 0.2% on the month and 5.4% on the year. Excluding just food and energy, the index was flat on the month and up 6.7% on the year.

That “core” increase of 0.2% was the 5th straight month of 0.3% or below, and producer prices for food moderated to a 0.5% increase for October, and 3.3% total in the last 6 months measured.

That doesn’t mean there weren’t big increases at the producer level for a few types of food, including fresh vegetables (+22.7%), fresh fruits/melons (+11.5%) and eggs (+15.0%). But we also saw producers get lower prices for several types of meat.

Meat price changes, PPI October 2022

1-month change
Beef and veal -2.1%
Processed chickens -12.5%
Pork -0.2%

12-month change
Beef and veal -15.9%
Processed chickens -9.2%
Pork +1.2%

Unfortunately, prices for turkeys are an exception to this, up 1.9% in October, and nearly 40% vs October 2021. So that might be an annoyance to you over the next week if you already haven’t bought your Thanksgiving bird, but there should be hope for relief at the grocery store for more items soon enough.

Good retail sales and moderating inflation pressures sure seem like a good situation to me, and with jobs still being added and unemployment under 4%, I don’t see why the Fed or Congress should want to impose further tightening to crush an inflation that is already fading.